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You purchased land 3 years ago for $55000 and believe its market value is now $80000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $145000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $220000 each year, while expenses will be a mere $22000 each year. The initial working capital requirement will be $10000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 10%. What is the
Answer
$134,640.25
OR
$29,935.11. pls solve stepwise and correct only or else skip pls.
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- You purchased land 3 years ago for $55000 and believe its market value is now $80000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $145000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $220000 each year, while expenses will be a mere $22000 each year. The initial working capital requirement will be $10000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 10%. What is the net present value of this project? Group of answer choices $134,640.25 $209,680.13 $189,244.35 $105,938.07 $650,832.00 PLEASE EXPLAIN ANSWER SHOWING WORK!!!!!!!!!!!!!!!!!!!You purchased land 3 years ago for $50,000 and believe its market value is now $60,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $75,000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $140,000 each year, while expenses will be a mere $30,000 each year. The initial working capital requirement will be $7,000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 11%. What is the net present value of this project? OA. $63,993 B. $59,226 OC. $30,495 OD. $10,729You purchased land 3 years ago for $75,000 and believe its market value is now $120,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $205,000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $334,000 each year, while expenses will be a mere $75,000 each year. The initial working capital requirement will be $14,000 which will be recovered in the last year. The tax rate is 28%. Your estimated cost of capital is 15%. What is the net present value of this project? O $139,666.75 $80,929.67 O $192,149.88 $831,000.00 O $186,089.94
- You are the owner of a book store and you are considering adding a coffee bar to your store. The cost of the expansion will be $ 1 million, and you expect to depreciate it over the coffee bar’s four year life, using straight line depreciation to an expected salvage value of $ 500,000 at the end of the fourth year. You will also borrow $ 400,000 from a bank, using a four year balloon-payment loan (only interest paid for four years, the principal is due at the end of the fourth year) with an interest rate of 10%. The coffee bar is expected to generate $ 500,000 in revenues in the first year, $ 600,000 in revenues in the second year, $ 550,000 in the third year and $ 500,000 in the fourth year. The expenses of operating the bar are expected to be 40% of revenues each year and the tax rate is 35%. Estimate the return on equity on this investment each year for the next four years. If your cost of equity is 12%, would you invest in this coffee bar. If your cost of equity is 12%, estimate…An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $200,800 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the following total expenditures during the next year: Inspection Title search Renovation Landscaping Loan interest Insurance Property taxes Selling expenses Required: a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,440 per month. However, he would have to make an additional $7,440 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order…Your neighborhood laundromat is for sale and a friend is considering investing in this business. Your friend has asked for your financial advice regarding this endeavor. For the business alone and no other assets (such as the building and land), the purchase price is $250,000. The net cash flows for the project are $30,000 per year for the next 5 years. The plan is to borrow the money for this investment at 6%. You will need to submit a presentation sharing your recommendation and you must address the following questions:Part A: Calculate the Net Present Value and Payback Period: What is the net present value of this project? Calculate the simple payback period for this project. Your desired payback period is 5 years. How long is the payback period for this project? Use the following template to complete the Unit 4 Excel spreadsheet (IP): Unit 4 IP Assignment Template Part B: Evaluate the investment and provide calculations for an alternative deal: How would you evaluate this…
- Assume that you are planning to buy a property producing natural resources. You think you will keep the property for the next 23 years. You plan to spend $700 per acre. You will have incurred costs of $11 per acre for the 23 years prior to selling the property. You believe that you will receive $26/acre/year in revenue during the investment period. What price (at time of the future sale) will you need to get for the property under 2 MAR scenarios. (using both 5.8% and 8% as MAR).Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year .The owner of the building put it up for sale at a price of $180,000 but because the firm has been a good tenant ,the owner offered to sell it to RKE for a cash price os $160,000 now .If purchased now, how long will it be before the company recovers its investment at an interest rate of 12% per year ?Solve by using the NPER function.
- RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year. The owner of the building put it up for sale at a price of $180,000, but because the firm has been a good tenant, the owner offered to sell it to RKE for a cash price of $160,000 now. If purchased now, how long will it be before the company recovers its investment at an interest rate of 15.00% per year? Solve by using the NPER function. The company will recover its investment in years.You are the owner of a building materials outlet, and you are considering adding a garden supplies section to your store. The cost of the expansion will be $1.5 million, to be depreciated over its 4-year life, using straight line depreciation to an expected salvage value of $500,000 at the end of the 4th year. To finance this investment, you will borrow $800,000 using a four- year balloon-payment bank loan (only interest paid for 4 years, the principal due at the end of the 4th year) with an interest rate of 10%. The garden supplies are expected to generate revenues of $650,000 in the 1st year, $ 700,000 in the 2nd year, $750,000 in the 3rd and 4th years. The expenses of operating the garden supplies section are expected to be 40% of revenues each year and the tax rate is 40%. Working capital requirements are expected to be 10% of revenues (made at the beginning of each period, but not debt financed beyond the initial $800,000 loan). Your cost of equity is 13%, and your cost of…You are considering buying an old warehouse that you will convert into anoffice building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?(i) Remodeling cost at period 0 = $550,000;(ii) Annual rental income = $800,000;(iii)Annual upkeep costs (including taxes)= $80,000;(iiii) Estimated net property value (after taxes) at the end of 10 years =$2,225,000;(iiiii)The time value of your money (interest rate)= 8% per year.(a) $4,445,770(b) $5,033,400(c) $5,311,865(d) $5,812,665